Stock Market Wrap-up – March 2020

The S&P/ASX 200 Accumulation Index returned -20.7% during the month. Australian equities underperformed global equity markets in March, having recorded their worst month since October 1987. The global response to COVID-19 has seen unprecedented restrictions on travel and social interactions that have many countries facing a recession. These fears saw equities sell off sharply and bond yields collapse. Oil prices slumped to 17-year lows, and even gold did not perform as a safe haven amid the turmoil. In major global developed markets, Japan’s Nikkei 225 was down 9.7%, the US S&P 500 was down 12.4%, the UK’s FTSE 100 was down 13.4% and the DJ Euro Stoxx 50 was down 16.2%.

The Reserve Bank of Australia (RBA) reduced the cash rate twice in March. At its 3 March meeting the cash rate was reduced to 0.50% from 0.75%. On 19 March, the RBA held an out of cycle meeting, where it further reduced the cash rate to a new record low of 0.25% and announced additional unconventional policy measures to help aid the economy through the current crisis. The RBA stated that they would purchase government and semi-government bonds to ensure that the 3-year bond yield remained at around 0.25%. The RBA will purchase Government bonds and semi-government securities across the yield curve to help achieve this target as well as to address market dislocations.

The Australian government also announced fiscal measures to help stabilise and protect the economy, people and businesses while the shutdown is enacted. The Federal government announced three separate stimulus packages totalling more than AUD 200 billion. State governments have also announced various measures to support businesses through the crisis.

Domestic economic data releases were mixed in March. Employment rose by 26,700 positions in February which exceeded expectations. The unemployment rate fell to 5.1% from 5.3%. The NAB Survey of Business Conditions fell in February to +0.4 point while business confidence fell to -3.6. February retail sales were up 0.4%. National CoreLogic dwelling prices continued to post gains, rising 0.7% in March.

All sector returns were again negative in March. The best performing sector was consumer staples (-3.6%), followed by health care (-5.4%) and utilities (-6.2%). These were followed by materials (-13.0%), communication services (-14.7%) and information technology (-17.9%), which also outperformed the broader market. Sectors that lagged included industrials (-22.7%), consumer discretionary (-25.9%), financials (-27.6%) and real estate (-35.6%). Energy (-37.5%) was the worst-performing sector.

The consumer staples sector was the best performer locally, as investors sought refuge in defensive stocks. Some of the supermarket stocks managed to post positive returns, including Coles (6.7%) and Metcash (27.5%). A2 Milk (7.7%) also outperformed. Stocks that dragged on the sector included Coca-Cola Amatil (-23.1%) and Treasury Wine Estates (-7.3%).

The health care sector benefitted from positive returns in names such as Fisher&Paykel (17.3%) and Resmed (1.0%). Sector heavyweight CSL (-3.6%), while negative, also outperformed versus the broader market.

The utilities sector also benefitted from its defensive nature, with stocks such as AGL (-10.2%) and APA Group (-4.5%) outperforming versus the market.

The financials sector lagged in March. The banks were all lower over fears of growing bad and doubtful debts resulting from the crisis and the realisation that rates will be “lower for longer”. The big four banks, Commonwealth Bank (-24.4%), Westpac (-30.2%), ANZ (-31.7%) and National Australia Bank (-33.5%), all underperformed the broader market. Of the insurers, QBE Insurance (-35.4%) was the worst performer.

The real estate sector, while usually a defensive safe haven, also underperformed the broader market due to concerns that tenants will not be able to pay their rent during the COVID-19 shutdowns. Key detractors included Scentre Group (-54.8%), Vicinity Centres (-52.1%) and Stockland (-46.3%). Lendlease (-41.6%) was also a major underperformer.

Energy was the worst performing sector, as the oil price war between Saudi Arabia and Russia took its toll on oil prices. The large cap oil names were the worst performers, with Oil Search (-56.1%), Santos (-49.9%) and Woodside Petroleum (-34.8%) all significantly lower.

Source: Brad Potter, Head of Australian Equities – Nikko Asset Management